During testimony in front of the Senate Banking Committee on Monday, Powell emphasized that the so-called Basel III endgame proposal is not a direct response to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank last spring. Instead, he said, the true policy responses — related to supervision and liquidity — are still ongoing.

"We have taken and are taking many more steps to deal with the problems that revealed themselves with Silicon Valley Bank," Powell said, adding: "The Basel III rules are not directly related, they are not the thing that is directly related to Silicon Valley Bank." 

Powell spelled out the distinction during a contentious exchange with Sen. Elizabeth Warren, D-Mass., who accused the Fed chair of caving to pressure from banks and their lobbyists who have forcefully opposed the capital reform package since it was proposed last summer.

"You are the leader of the Fed and when the heat was on last year, you talked a lot about getting tougher on the banks, but now the giant banks are unhappy about that and you've gone weak kneed on this," Warren said. "The American people need a leader at the Fed who has the courage to stand up to these banks and protect our financial system."

The exchange took place on the second day of Powell's semiannual report to Congress about the state of monetary policy. During his first round of testimony, which took place Wednesday in front of the House Financial Services Committee, the Fed chair called for "broad and material" changes to the proposed capital rule and left open the possibility of issuing a totally new proposal. 

Warren, a leading voice in Congress for more stringent bank regulation, argued that in making those comments, Powell had undermined his previous commitment to supporting Fed Vice Chair for Supervision Michael Barr's efforts to address the issues that led to last year's bank failures.

Powell pushed back on this characterization, arguing that he has done "exactly what I said I would do." He also spelled out what he views as the limits of the vice chair for supervision's authorities for steering the Fed's regulatory policy making process.

"The vice chair for supervision has every right to bring proposals to the board. That has happened … but [he's] not the comptroller of the currency," Powell said. "When I do monetary policy, I have one vote, there's 11 other voters, that's the way it works. It's not different for the vice chair for supervision."

The back-and-forth highlights a key point of frustration among lawmakers in both houses and on both sides of the aisle: the Fed's use of Silicon Valley Bank as a justification for increasing capital requirements.

Indeed, Barr pointed to last spring's episode as evidence that even banks that are not systemically important in size can have destabilizing effects on the banking system if they fail, in the context of expanding certain capital requirements to all banks with at least $100 billion of assets. But he has also emphasized that last summer's capital proposal was meant to bring the U.S. into alignment with the global standards set by the Basel Committee on Banking Supervision in 2017. That distinction has not always rung through to members of Congress.

Powell said the actual response to the issues related to Silicon Valley Bank's demise will take the form of new liquidity requirements — which he expects will surface later this year — and wholesale revisions to bank supervision. 

Powell noted that adjusting supervisory policies and practices throughout the entire Federal Reserve System is no small task, given that there are thousands of staffers working both for the Board of Governors in Washington and within the 12 regional reserve banks. He added that the Fed has spent a lot of time studying what happened and listening to various stakeholders to understand how supervisors can address issues quicker and more effectively.

"We're working hard to develop a new rulebook and another set of practices, which is still going to be evidence-based and fair, but is going to involve earlier interventions and more effective ones," Powell said. "This is work that's ongoing and will be for some time."

During the hearing, Powell also addressed recent calls for updating the Fed's last-resort lending facility, the discount window, to address issues that arose during the failures of Silicon Valley and Signature. 

"There's a lot of work to do on the discount window," Powell said. "It needs to be brought up technologically into the modern age, we need to eliminate the stigma problem and we need to make sure banks are actually able to use it when they need to use it. That's a broad work program that we're on right now. It's important."